Buy IRB Infra; target of Rs 312: Emkay

In Q4FY16, IRB Infra's EBITDA came in at Rs 7.4 bn +29.6% YoY versus expectation of Rs 7.27 bn and clocked EBITDA Margin of 48.1% against expectation of 52.8% due to higher revenue contribution from the construction segment along with lower construction margins. BOT margin came largely in line with expectation at 85.5% whereas construction margin also came lower at 25.2% versus expectation of 29.5% due to execution of utilities shifting work carrying no margins.  Revenue from Ahmedabad  Vadodara came below expectation at 856 mn against estimate of 944 mn given the first quarter of full commissioning of expressway and NH-8. We have reduced FY17E/18E EPS estimates by 2%/4.5% as we reduced traffic growth at Ahmedabad Vadodara however it does not impact NPV of the project due to premium deferment scheme which keeps back ending the premium obligation to NHAI to such an extent that the concession period runs out before it can be fully repaid, which ultimately do not impact the cash flows for NPV calculations.  We believe NHAI can recover the premium due by extending the concession period, if the project traffic growth continues to remain lower than expectation.

IRB Infrastructure’s total order book as at Mar-16 ending stands at Rs 97.46 bn. The backlog includes, Rs 11.7 bn worth of Goa Kundapur and Rs  64.81 bn worth of orders from newer projects like Solapur Yadeshi, Yadeshi Aurangabad, Kaithal Rajasthan, Mumbai Pune extension and Agra Etawah. Adding new projects to order book kitty provides a reasonable visibility of 2.6x FY16 construction revenues. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.